The Clorox Company Introduces 2020 Strategy to Drive Long-Term Growth

2013-10-03 14:45 ET - News Release

OAKLAND, CA
-- (Marketwired)
-- 10/03/13

The Clorox Company (NYSE: CLX) today unveiled its updated strategic growth plan during a Clorox Analyst Day event and live webcast at its new research and development campus in Pleasanton, Calif. The 2020 Strategy, which focuses on delivering long-term, profitable growth through the year 2020, is an evolution of the company's recently completed Centennial Strategy.

"Our Centennial Strategy guided the company during one of the toughest economic recessions the world has experienced since World War II," said Chairman and CEO Don Knauss. "Despite that, during the past five years, our strong brands, experienced management team and top-tier capabilities have enabled us to deliver total stockholder returns in the top third of our peer group."

In the past five fiscal years (July 1, 2008, through June 30, 2013), Clorox delivered total stockholder returns of 88 percent, compared to an average of 82 percent for its peer group* and an average of 40 percent for the S&P 500. Clorox's strong cash flow enabled the company to raise its dividend from $1.60 to $2.56, an increase of 60 percent. Between share repurchases and total annual dividends paid to stockholders, Clorox returned more than $2 billion in cash to its stockholders in this five-year period.

"Building on this foundation, our sights are set on 2020, with a strategy that focuses the company on the highest-value opportunities to deliver sustainable, profitable growth," said Knauss.

This press release includes some non-GAAP financial measures. See "Non-GAAP financial Information" below and at the end of this press release for more information.

The 2020 Strategy aims to continue delivering total stockholder returns in the top third of Clorox's peer group by driving economic profit (EP)**. In addition, the company's long-term financial goals include:

Benno Dorer, executive vice president and chief operating officer - Cleaning, International and Corporate Strategy, led the introduction of the 2020 Strategy at Analyst Day, commenting, "Our 2020 Strategy sets clear goals and aspirations for the company's next set of milestones. Key to achieving our goals is balancing our resources against sustaining a healthy core, anchored in our U.S. retail business, while seeking growth opportunities in profitable, margin-accretive areas adjacent to our core businesses."

To accomplish its 2020 goals, Clorox has chosen to focus on the following four strategies:

1.Engage our people as business owners.

From a team member working the manufacturing line at one of its plants to another leading a new product launch in Latin America, to yet another developing new products at the company's innovation center, Clorox people are at the forefront of executing the company's strategy. Today, Clorox is focused on driving agility further into its culture and operations. Its priority is to simplify operational processes, with a goal to empower people to make decisions faster and work even more efficiently. In addition, by leveraging its employer brand, "Our Clorox," the company will continue to foster the most important Clorox attributes that drive high levels of employee engagement, including its strong values, great brands and products, and meaningful career opportunities. In fiscal 2013, Clorox's employee engagement score reached 87 percent compared to the global benchmark of 80 percent, which is based on responses from more than 250,000 employees in 25 countries.

According to Dorer, the proliferation of media channels influencing purchase decisions as well as changes in retail formats are creating more complexity in reaching target audiences. As a result, Clorox will evolve its 3D demand-creation model of desire (pre-purchase communications), decide (point-of-purchase communications) and delight (post-purchase product experience) in the face of this increasing fragmentation of consumers and retailers. The company plans to leverage deeper consumer and shopper insights as well as digital capabilities to better personalize its communications, capitalize on the growing role of e-commerce and ensure a more flexible supply chain that enables fast customization of products to address the various needs of consumers and retail customers.

Dorer also emphasized that Clorox will continue to compete based on the superior value proposition of its brands, with the goal to keep delivering consumer-preferred products. The company defines Clorox products as preferred when 60 percent of consumers favor them over competitor products in blind tests. Based on this definition, Dorer said that more than half of the company's U.S. retail portfolio comprises consumer-preferred products today -- a noteworthy achievement.

Innovation continues to be the lifeblood of Clorox, contributing more than 3 percentage points of incremental sales growth in each of the last two fiscal years. Wayne Delker, senior vice president and chief innovation officer, commented on Clorox's strong innovation track record, stating, "The success of our innovation efforts comes from a balance of producing 3D news across our brands; delivering product superiority; implementing 'cost-o-vation,' the concept of cutting costs while delivering product improvements; and exploring new product platforms and categories that are adjacent to our core businesses."

George Roeth, executive vice president and chief operating officer - Household & Lifestyle, highlighted the cost-o-vation example of Clorox's new concentrated bleach, which reduces raw material inputs while delighting the consumer with improved performance. Since its launch at the start of fiscal 2013, Clorox® concentrated bleach has grown the total bleach category more than 6 percent and is expected to have delivered about 500 basis points in gross margin improvement for the bleach business through the first quarter of fiscal 2014 alone. In addition, the conversion to a new concentrated formula has reduced greenhouse gas emissions by 23 percent across the product manufacturing and distribution process.

Clorox also reviewed its plans to take innovation to the next level by leveraging its people, processes and capabilities. The company will continue to tap the ideas of people inside Clorox and the skills of external partners to create new products. Clorox's Bay Area location presents a strategic advantage, with access to the expertise of world-class academic institutions and Silicon Valley-based technology firms that can help the company advance its innovation efforts. Clorox also has made significant investments to support innovation for the long-term, including the creation of a consumer learning center to ensure product development is grounded in strong insights; an innovation center that fosters internal collaboration across multiple functions involved in the discovery, development and commercialization of new products; and a pilot plant to test product manufacturing processes.

3.Grow into profitable new categories, channels and countries.

A major focus of the 2020 Strategy will be to identify and pursue strategic opportunities to expand in markets with strong profit potential. Clorox will target opportunities that have scale and competitive dynamics enabling the company to leverage its brand strengths and demand-creation capabilities. These opportunities include categories that are adjacent to the company's core businesses in which its brands can be successful, new sales channels such as healthcare facilities, or countries where Clorox can expand its product offerings.

To illustrate, Roeth highlighted the significant growth opportunity of the company's Stop the Spread of Infection platform in retail and professional healthcare channels. Servicing the food, cleaning and maintenance, and healthcare industries, the company's Professional Products business has delivered exceptional growth through a combination of organic growth and bolt-on acquisitions, largely driven by expansion into healthcare channels. In the last five fiscal years (July 1, 2008, through June 30, 2013) the business has grown in sales from about $116 million to about $274 million, for a compounded annual growth rate of about 19 percent. Roeth also discussed the expansion of the Burt's Bees business internationally, particularly in Asia where the brand has a strong fan base. He noted the example of Burt's Bees® product sales in South Korea, which grew nearly 50 percent in fiscal 2013.

On the international front, the company will continue to drive growth in geographies and categories where it has a significant presence and competitive advantage, including Canada, Latin America, Australia, New Zealand and the Middle East. In particular, Clorox will invest disproportionately behind its fastest-growing markets, including Chile, Colombia and Peru, where it has No. 1 or No. 2 brands. Clorox also remains focused on managing the business challenges it faces in Venezuela and Argentina, where price controls and high inflation are impacting sales and profits. Optimizing cash flow, adjusting demand-building investments and implementing cost savings are among the company's priorities to address the challenges in these two markets.

The company's plans to expand margins over the long-term include continuing to deliver strong cost savings, reducing selling and administrative expenses to 14 percent of sales or less over time and transforming into a more agile enterprise.

Roeth said, "When it comes to everyday tasks and operational processes, we're unleashing the power of Clorox people to drive our business with greater speed and efficiency. We'll also focus the company on work that delivers the highest value to our consumer. Looking through this consumer lens will help us make better decisions about resource allocation to support our goals for growth."

Cost discipline is a company hallmark. For more than 10 consecutive years, Clorox's cost savings initiatives have delivered about 150 basis points in annual margin expansion. This has helped the company weather the challenging economic environment of the past several years, when increased commodity costs and high inflation in international markets impacted its manufacturing costs and margin.

"Innovation comes to life in all areas of the company," stated Roeth. "We've been able to think as creatively about cost savings as we have about marketing and product innovation. We've also made smart investments in areas like technology, product supply and environmental sustainability to help drive even greater efficiencies across our operations."

A replay of the Clorox Analyst Day webcast as well as the presentations will be available at Clorox investor events.

**Economic Profit (EP), a non-GAAP measure, is defined by the company as earnings from continuing operations before income taxes, noncash restructuring-related and asset impairment costs, noncash goodwill and intangibles impairment and interest expense; less an amount of tax based on the effective tax rate before any noncash goodwill and intangibles impairment charge, and less a charge equal to average capital employed multiplied by the weighted-average cost of capital. Management uses EP to evaluate business performance and allocate resources, and it is a component in determining management's incentive compensation. Management believes EP provides additional perspective to investors about financial returns generated by the business and represents profit generated over and above the cost of capital used by the business to generate that profit.

The Clorox Company

The Clorox Company is a leading multinational manufacturer and marketer of consumer and professional products with approximately 8,400 employees and fiscal year 2013 revenues of $5.6 billion. Clorox markets some of the most trusted and recognized brand names, including its namesake bleach and cleaning products, Clorox Healthcare, HealthLink®, Aplicare® and Dispatch® products, Green Works® naturally derived products, Pine-Sol® cleaners, Poett® home care products, Fresh Step® cat litter, Glad® bags, wraps and containers, Kingsford® charcoal, Hidden Valley® and KC Masterpiece® dressings and sauces, Brita® water-filtration products, and Burt's Bees® and gud® natural personal care products. Nearly 90 percent of the company's brands hold the No. 1 or No. 2 market share positions in their categories. Clorox's commitment to corporate responsibility includes making a positive difference in its communities. In fiscal year 2013, The Clorox Company Foundation awarded about $4 million in cash grants, and Clorox made product donations valued at nearly $15 million. For more information, visit TheCloroxCompany.com.

Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), and such forward-looking statements involve risks and uncertainties. Except for historical information, matters discussed above, including statements about future volume, sales, costs, cost savings, earnings, cash flows, plans, objectives, expectations, growth, or profitability, are forward-looking statements based on management's estimates, assumptions and projections. Words such as "will," "could," "may," "expects," "anticipates," "targets," "goals," "projects," "intends," "plans," "believes," "seeks," "estimates," and variations on such words, and similar expressions, are intended to identify such forward-looking statements. These forward-looking statements are only predictions, subject to risks and uncertainties, and actual results could differ materially from those discussed above. Important factors that could affect performance and cause results to differ materially from management's expectations are described in the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report on Form 10-K for the fiscal year ended June 30, 2013, as updated from time to time in the company's SEC filings. These factors include, but are not limited to: worldwide, regional and local economic conditions and financial market volatility; risks related to international operations, including political instability, foreign currency exchange rate fluctuations and government-imposed price controls or other regulations, particularly in Venezuela and Argentina; intense competition in the company's markets; volatility and increases in commodity costs such as resin, sodium hypochlorite and agricultural commodities and increases in energy or transportation costs; the ability of the company to drive sales growth, increase market share and grow its product categories, and achieve favorable product and geographic mix; dependence on key customers and risks related to customer ordering patterns; the ability of the company to implement and generate anticipated cost savings and efficiencies; costs resulting from government regulations; the ability of the company to successfully manage global political, legal, tax and regulatory risks; the impact of product liability claims and other legal proceedings, including in foreign jurisdictions; the success of the company's business strategies; the ability of the company to develop and introduce commercially successful products; risks relating to acquisitions, new ventures and divestitures and associated costs; supply disruptions and other risks inherent in reliance on a limited base of suppliers; the company's ability to attract and retain key personnel; the company's ability to maintain its business reputation and the reputation of its brands; environmental matters including costs associated with the remediation of past contamination and the handling and/or transportation of hazardous substances; the impact of natural disasters and other events beyond the company's control; the company's ability to maximize, assert and defend its intellectual property rights; any infringement by the company of third-party intellectual property rights; the effect of the company's indebtedness on its operations and financial results; changes to the company's credit rating; the sufficiency of the company's cash flow; the company's ability to maintain an effective system of internal controls; risks related to reliance on information technology systems, including potential security breaches or service interruptions; uncertainties relating to tax positions, tax disputes and changes in the company's tax rate; the accuracy of the company's estimates and assumptions on which its financial statement projections are based; and the company's ability to declare dividends or repurchase its stock in the future.

The company's forward-looking statements in this press release are based on management's current views and assumptions regarding future events and speak only as of their dates. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by the federal securities laws.

Non-GAAP Financial Information

This press release contains non-GAAP financial information relating to EBIT margin and free cash flow. The company has included historical reconciliations of non-GAAP financial information related to EBIT margin and free cash flow to the most directly comparable financial measure calculated in accordance with generally accepted accounting principles in the U.S. (GAAP). See the end of this press release for these reconciliations.

The company disclosed information related to these non-GAAP financial measures to supplement its consolidated financial statements presented in accordance with GAAP. These non-GAAP financial measures exclude certain items that are included in the company's results reported in accordance with GAAP, including interest income and interest expense. Management believes these non-GAAP financial measures provide useful additional information to investors about trends in the company's operations and are useful for period-over-period comparisons. These non-GAAP financial measures should not be considered in isolation or as a substitute for the comparable GAAP measures. In addition, these non-GAAP measures may not be the same as similar measures provided by other companies due to potential differences in methods of calculation and items being excluded. They should only be read in connection with the company's consolidated financial statements presented in accordance with GAAP.

To access the Clorox Analyst day presentations and other investor materials, visit Investor Events.

Definitions of non-GAAP measures, reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures and other supplemental information are presented below. See "Non-GAAP Financial Information" above for further information regarding the company's use of non-GAAP financial measures.

EBIT represents earnings from continuing operations before interest income, interest expense and income taxes. EBIT margin is the ratio of EBIT to net sales. Both EBIT and EBIT margin are non-GAAP financial measures. Management believes the presentation of EBIT and EBIT margin provides additional useful information to investors about current trends in the business.

Free cash flow is defined by the company as net cash provided by continuing operations less capital expenditures. Management uses free cash flow and free cash flow as a percent of sales to help assess the cash generation ability of the business and funds available for investing activities, such as acquisitions, investing in the business to drive growth, and financing activities, including debt payments, dividend payments and share repurchases. Free cash flow does not represent cash available only for discretionary expenditures, since the Company has mandatory debt service requirements and other contractual and non-discretionary expenditures. In addition, free cash flow may not be the same as similar measures provided by other companies due to potential differences in methods of calculation and items being excluded.